It's a Platform's World

28 Nov 2018

This blog is based upon an article by Martijn Moerbeek that first appeared on LinkedIn

“How did you go bankrupt?” is a question that two characters in Ernest Hemingway’s The Sun Also Rises asked themselves. After some deliberation they concluded that it was in two ways: gradually, and then suddenly. Although this book is a piece of fiction, it’s not too far from the truth.

The path to hell. Or to heaven.

Look at the path that Blackberry took after Apple launched its iPhone in 2017: gradually, and then suddenly. Back in 2007, the five major mobile phone manufacturers took 90% of global profits, but fast-forward eight years and the tables were turned. By 2015, Apple made 92% of profits and none of the old guard, with the exception of Samsung, made any profit at all.

How can we explain this sudden rise to dominance of the iPhone? In 2007, Apple was a weak and nonthreatening player surrounded by 800 pound gorillas. It held 4% of market share in desktop operating systems and none in mobile phones. From a traditional strategy point of view, the incumbents held all the cards: they had massive R&D budgets, a recognisable brand and massive scale.

But Apple did not just conceive the iPhone as an aspirational and beautiful product; it also designed it to be a two-sided market place. As customers bought the iPhone, they almost unwittingly joined the platform and as more people joined, more app developers joined as well. This became a virtuous circle that in the world of platforms we refer to as network effects.

The resultant exponential growth is something that traditional “pipeline” companies can just not react to. When they are faced with such an onslaught of a platform, they like Blackberry, can stick their head in the sand and hope for the best or they can try to re-invent themselves. That’s the choice we will all face eventually as I believe that platforms will disrupt most industries.

Martijn Moerbeek is director of group digital strategy and innovation at Legal and General. He can be reached at martijn.moerbeek@landg.com.